Rise of Borderless Corporation

DaimlerChrysler deal will test whether two cultures can merge in boardroom.

Which will sit on the hood of the DaimlerChrysler: the elegant three-pronged Mercedes star or the chunkier five-pronged Chrysler version?

The difference in emblems, though subtle, illustrates the challenge facing the latest megamerger between Germany's Daimler-Benz, producer of leather-seated road machines that can cost as much as $135,000, and Detroit's Chrysler Corp., which builds $40,000 Jeeps and $20,000 minivans.

Cross-border mergers have been taking place for years, as new information technology shrinks distances and the fall of trade barriers makes many borders mere lines on a map.

But no international business marriage to date has been this large - $36 billion - or this challenging. DamilerChrysler executives now face the task of combining a stodgy yet exacting German culture of technical elegance with a free-wheeling, all-American car company.

"This is a staggering development, a cross-border merger of immense dimensions," says Marvin Zonis, an international consultant based in Chicago.

Mercedes is known as a slow-moving and conservative company, while Chrysler has often been the leader in new ideas, such as developing the minivan. Mercedes, although based in Stuttgart, has a more global presence: Its automobiles are driven by Saudi princes, for example. Chrysler, however, has found ways to sell its cars to the enormous middle market - an area Mercedes has missed.

Even prior to the DaimlerChrysler announcement, the auto industry had been changing. Ford had purchased Jaguar. One effect of the merger: Budget Rent A Car offers the English sports cars. General Motors has an investment in Saab. Without this merger, says Mr. Zonis, "I don't think Chrysler would have survived."

The proposed marriage, announced yesterday in London, is also part of a larger trend. Companies believe that to compete globally they must either become giants offering a full range of services or niche players, making a product so unique that reputation alone will carry them forward. In recent weeks there have been some megamergers, such as Citicorp and Travellers, and Nationsbank and Bank of America.

The DaimlerChrysler merger is part of a massive wave of investment by German firms in the US. German investment has more than doubled here since 1994, and German firms employ more Americans than do companies from any other nation. Some of the big German companies include Bertelsmann, which owns many American publications and some of the big German chemical companies.

Good timing

The DaimlerChrysler merger comes at the right time for Chrysler, says Susan Jacobs of Jacobs & Associates in Rutherford, N.J. The US market is saturated, and the company's only avenue for growth is overseas. Chrysler, which has been building cars in Europe for years, has only 1 percent market share there. Ms. Jacobs says Chrysler's brands - Jeep, Dodge and Plymouth - can break into markets closed to Mercedes.

Economist C. Fred Bergsten sees the merger as a "win-win proposition." The director of the Institute for International Economics in Washington says the merger will add to the internationalization of industry and improve the efficiency of the two companies.

"There will be difficulties in meshing two big companies like this," he says. But he adds that Daimler-Benz has in the past two years moved toward an American-style management with an emphasis on shareholder value and efficiency. With the world surplus in auto production, he sees no antitrust problems arising from the merger.

English speakers

One factor facilitating some of the cross-border mergers is the growing use of English, says Karl Sauvant, chief of a branch of the Geneva-based United Nations Conference on Trade and Development. The major problem for the Daimler merger, he says will be combining into a unified business "two different corporate cultures, two ways of doing things."

In fact, the Conference Board, a business research organization, in a survey of transnational CEOs published last year, found that culture and people issues are the biggest roadblocks to success.

The companies that are most successful, says Melissa Berman, director of research, have more foreign citizens in top management - 20 to 25 percent compared with 10 percent for most other companies. "They have more polyglot top managers," says Ms. Berman.

Americans working for foreign owners often find that their new owners take a much more hands-on approach. This was the case for Russell Memmer, who ran the German-owned Lehigh Portland Cement Co. in Allentown, Pa.

The German owner, like most other German companies, has a management board. Mr. Memmer, who is now retired, found that this board was very interested in the day-to-day operations of his company.

"They want to know the specifics of your business plan, financials, operating costs, things we normally think our top management would be involved with," he says. Memmer, who still sits on the board of Lehigh, says the experience was "positive" but "challenging."

Auto analysts believe the Daimler-Chrysler deal will prove to be challenging as well. "The only question is, can these guys work together?" asks Stephen Girsky, chief auto analyst for Morgan Stanley & Co.

The corporate cultures are strikingly different. While Daimler's is historically conservative, Chrysler is known for taking risks. And while Chrysler's designers aim for gas-guzzling middle America, Mercedes hobnobs with the rich and influential. Chrysler's emphasis is on styling, and Mercedes' is on engineering.

There will be more practical challenges as well. These range from different accounting techniques and regulatory practices to language barriers at the water cooler. Indeed, one question is whether such cross-boarder deals will lead to a new form of global regulation. For now, antitrust regulators are constrained by national laws. But the World Trader Organization, for one, is looking into setting up international-competition policy guidelines.

R&D bonanza

Still, for Daimler and Chrysler the merger would reap savings in future development costs, says Mr. Girsky. This year Daimler's automotive operations spent $2 billion on research and development, while Chrysler spent another $1.7 billion.

Although the Daimler-Chrysler product lineup will not likely be thinned much, work on fuel economy, emissions, and safety could be merged, Girsky says.

But the firms won't share factories any time soon, because it takes too long to convert factories to build new products, he says.

As to that star on the front of the car, Art Spinella, head of automotive research for CNW Marketing Research in Bandon, Ore., predicts, "No way will we start seeing Chrysler minivans wearing a Mercedes badge."

* Eric Evarts and David R. Francis contributed to this report.

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